Full Court of the Federal Court finds Lux guilty of unconscionable conduct

As reported in our previous blog post, the Australian Competition and Consumer Commission (ACCC) brought proceedings against Lux Distributors Pty Ltd (Lux) after five elderly women were sold Lux vacuum cleaners between 2009 and 2011, having agreed to a free maintenance check of their existing vacuum cleaners. The ACCC brought an action against Lux alleging that Lux had breached the unconscionable conduct provisions under section 51AB of the then Trade Practices Act 1974 and section 21 of the Australian Consumer Law.

On 8 February 2013, Justice Jessup of the Federal Court rejected each of the five claims and found that Lux had not engaged in unconscionable conduct.

The appeal by the ACCC to the Full Court of the Federal Court (Full Federal Court) related to conduct by Lux involving three of the five consumers. The appeal was based on the grounds that the trial judge erred in fact and law by finding that the conduct of Lux in relation to these three consumers was not, in all the circumstances, unconscionable.

As part of the appeal, the ACCC alleged:

the primary purpose of the visit by the Lux representative was to sell a vacuum cleaner, which was not disclosed to the consumers;

each of the three consumers were elderly and alone at the time they were visited by the Lux representative;

the Lux representative was not equipped to carry out the maintenance check, and the test that was carried out was designed to demonstrate the inferiority of their existing vacuum cleaner and to sell a current model Lux vacuum cleaner;

the Lux representative remained in the homes of the consumers for at least one and a half hours;

during the time they were in the homes of the consumers, the Lux representative breached legislative obligations placed on them when transacting with consumers in their homes; and

none of the consumers were aware of the ten day cooling off period.

On 15 August 2013, the Full Federal Courtupheld the ACCC’s appeal. The Full Federal Court set aside the judgment of Justice Jessup, declaring that in all the circumstances Lux had engaged in unconscionable conduct indicated by obtaining entry by deception, contravening State and Commonwealth laws on direct selling and exploiting the inequality of bargaining power.

The Full Federal Court discussed in detail each of the three representatives’ contraventions of direct selling legislation, in particular section 74 of the Australian Consumer Law and the relevant Fair Trading Act provisions in Queensland and Victoria. It was found that, in determining whether unconscionable conduct had occurred, the court must refer to a ‘normative standard of conscience’.

The Full Federal Court respectfully disagreed with Justice Jessup’s approach in finding that Lux did not engage in unconscionable conduct on seven grounds, namely:

The primary judge gave too little weight to the fact that the opportunity to sell the vacuum cleaners was gained by deception.

The length of time the sales representative spent in the homes of the elderly women, and the solicitous selling techniques employed, created subtle pressure on the women to the point where the women felt pressured and obligated to buy.

The fact that it could not be said that the Lux representatives had no genuine intention of carrying out a maintenance check does not absolve Lux from its deception. The primary purpose of each representative was to sell a vacuum cleaner, and not to carry out a free maintenance check.

The effect of the deception was that it unfairly deprived each householder of an opportunity to refuse the representative entry to their home was not given enough weight by the primary judge.

The relative bargaining strengths was incorrectly assessed by the primary judge. Entering and remaining in a person’s home creates a real position of strength for the seller. This was compounded by the breach of State and Commonwealth laws in relation to direct selling.

The primary judge failed to give weight to the State and Commonwealth legislative provisions intended to ensure fairness in the process of selling.

Too much weight was given to the cooling off periods in the contracts, which was a requirement of law and did not ameliorate the conduct of the representatives.

The matter will be listed for a directions hearing regarding submission on relief, including pecuniary penalties.

Mr Sims said “The Court’s decision represents a positive outcome for consumers and serves as a warning for businesses. The ACCC will continue to take enforcement action if it considers that companies have engaged in unconscionable conduct, particularly in cases involving vulnerable consumers and where there have been breaches of consumer protection provisions of the ACL”.

This case and the ACCC’s decision to appeal reinforces the ACCC’s publicly stated commitment to strong enforcement.